CEOs in crisis

CEOs are in a state of crisis. As an adviser to CEOs, I can tell you that chief executives are under siege on all fronts…This is clearly a defining time for CEOs as an occupational class. To be clear, I’m not using the term “crisis” as it relates to dealing with the difficulties and challenges associated with navigating a recession, rather I’m talking about CEOs being able to successfully manage the intensity of negative public opinion. In today’s post I’ll share why I believe most CEOs are unfairly being vilified.

Will the actions of a few bad CEOs take down the reputations of all, or is the American public smart enough to see through the blame game currently being played by the media and the politicians? Look, I understand that Americans are upset about the economic debacle we find ourselves presently entangled in. I’m upset and outraged as well. Nobody could listen to the stories of CEO abuse that have circulated in the media of late and not have the hair stand-up on the back of their neck. That being said, not all CEOs are bad guys…in fact I’ll go so far as to say rogue CEOs are the exception and not the rule.

So, are CEOs getting a bad rap? In a word, yes. We’ve entered the blame zone of rash allegations and finger pointing in order to deflect responsibility. While I understand that no sane person could have watched the events of the last few month’s and not want to pin the blame on someone, simply assigning “villain” status to chief executives as a class because their compensation plans seem egregious to some is not the answer.

So, is CEO compensation out of control? In some cases I absolutely believe it is, but not in every case as many politicians and pundits would have you believe. I take great exception to those chief executives that take advantage of the position they hold, the shareholders they represent, and the relationships they’re entrusted with. That being said, the CEOs described in the preceding sentence don’t constitute the majority of chief executives.

I have called for transparency in previously addressing the issue of Rogue CEOs and Board Accountability. I can tell you from first hand experience that most chief executives are hard working professionals who take their fiduciary obligations very seriously. Moreover they hold the position of chief executive while incurring great personal risk and sacrifice. All one has to do is watch a CEO testify on Capitol Hill to know that the buck does eventually come to rest with the chief executive. I would be remiss if I didn’t take this opportunity to chasten the shameless politicians who use national tragedy and congressional testimony as a publicity platform to air venomous soundbites in order to transfer blame and placate their constituencies, but I digress…

At face value, I don’t care how much money a CEO does or doesn’t make. The issue is not the amount of remuneration paid out to CEOs, but rather on what basis, and when it is paid out. Simply put, CEOs that perform deserve all the compensatory benefits that accompany said performance, and to compensate them for the risk they undertake in the execution of their duties. Conversely, those CEOs who fail to perform have no business maximizing compensation to the detriment of the stakeholders they were supposed to be serving. I have no troube with a CEO using a corporate jet to conduct business that is in the best interests of shareholders. It is the CEO who abuses shareholder trust by using the corporate jet for personal gain or frivolous activities that has crossed the line. Again, keep in mind that most CEOs have never even seen the inside of a private jet…

Sure some CEOs are idiots, but so are a certain percentage of people in any occupational class. No doubt CEOs will need to work overtime in order to rebuild trust and credibility with the public…Their actions must match their words, and they need to demonstrate an understanding that holding the title of chief executive is a priviledge, not a right. All of this said, what is perhaps most important for the American public to realize is the true peril that lies ahead if we over-react and neuter CEOs such that they become nothing more than powerless figureheads. Oversight is a good thing, but where were these concerned politicians leading up to this current mess.

Bottom line…it is not wrong to assign some blame to the rogue CEOs who deserve it, but it is terribly wrong to assign blame to those good chief executives just because CEO is printed on their business card.

If you’re a CEO, are you trusted? If you’re not the CEO, do you trust your chief executive? Steve Rubel, the Director of Insights for Edelman Digital, and one of my favorite bloggers (Micro Persuasion blog) was recently quoted as saying “People have not trusted CEOs for years, and especially not for the last 12 months.” I normally tend to agree with Steve, and regrettably, I must admit that he accurately reflects the public perception with the aforementioned quote as well. As a backdrop for today’s post, I’d suggest reading a prior post entitled “The No Spin Zone” in which I breakdown the need for trust in the workplace.

One of the first things I stress with my clients is that to be an effective leader they must be regarded as trustworthy. CEOs must make it a priority to not only establish trust, but to maintain a trust bond with all key stakeholders and constituents. CEOs who break trust with their CXOs, management, staff, investors, lenders, media, vendors, suppliers, and partners will not survive for long. Even if by some stroke of luck they happen to survive, they certainly will not be effective. While great leaders will often have their policies and positions challenged, they will rarely have their character or integrity called into question.

So why is it that the public does not trust CEOs? If you will, I’ll ask you to put aside for a moment the fact that the media has vilified CEOs of late…Most rational people will see through the sensationalism and exploitation of a few easy targets, and not let the acts of a few rogue CEOs determine the fate of an entire occupational class (see “CEOs in Crisis“). The real reason that CEOs are not trusted is that they are not well known at a personal level.

CEOs who either sequester themselves away in their offices, or allow their access to be gated by others do themselves and their organizations a great disservice. CEOs who view themselves at the top of the org chart overseeing all, as opposed to placing themselves at the bottom of the org chart serving all others will have a difficult time establishing trust. It is a complete misnomer that you have to guard your authentic self to be an effective leader. Quite the opposite is true…To be known at a personal level, to be authentic and transparent, and to be just another member of the team doesn’t make you a bad leader, it makes you a trusted, respected, and effective leader.

Are CEOs getting a bad rap? In a word, yes. As a top ceo coach, I can tell you that CEOs are under siege…in fact, I would go so far as to say that CEOs as an occupational class are in a state of crisis. I understand that Americans are upset about the economic debacle we find ourselves presently entangled in. I’m upset and outraged as well. What’s frustrating to most is that there are many more questions being posed than answers being given at this point in time. We’ve entered the blame zone of rash allegations and finger pointing in order to deflect responsibility. While I understand that no sane person could have watched the events of the last few weeks and not want to pin the blame on someone, simply assigning “villain” status to chief executives as a class because their compensation plans seem egregious to some is not the answer. In today’s post I’ll examine the issue of CEO Compensation and why I believe CEOs are unfairly being vilified.

So, is CEO compensation out of control? In some cases I absolutely believe it is, but not in every case as many politicians and pundits would have you believe. I take great exception to those chief executives that take advantage of the position they hold, the shareholders they represent, and the relationships they’re entrusted with. That being said, the CEOs described in the preceding sentence don’t constitute the majority of chief executives. I have called for transparency in previously addressing the issue of Rogue CEOs and Board Accountability. That being said, rogue CEOs are the exception and not the rule. Most chief executives are hard working professionals who take their fiduciary obligations very seriously. Moreover they hold the position of chief executive while incurring great personal risk and sacrifice.

At face value, I don’t care how much money a CEO does or doesn’t make. The issue is not the amount of remuneration paid out to CEOs, but rather on what basis, and when it is paid out. Simply put, CEOs that perform deserve all the compensatory benefits that accompany said performance, and to compensate them for the risk they undertake. Conversely, those CEOs who fail to perform have no business maximizing compensation to the detriment of the stakeholders they were supposed to be serving. Let me use the actual case of Dick Fuld, the former CEO of Lehman Brothers to see if I can help you clarify your thoughts on the topic of CEO compensation. I would ask that you watch the video and form an opinion from what you see:

If you were to just watch the above video of his recent testimony without knowledge of the whole picture, I think you would probably come to the conclusion that he displays a lack of sincerity, credibility, and remorse. One of the oldest and most highly regarded investment banks failed on his watch, and all you witness in observing his testimony is what appears to be Dick caught in a self-serving, sanctimonious CYA maneuver. Now, lets take a look at things with a bit more disclosure, and from a bit of a different perspective. Look at the following revenue and profit numbers (I rounded the numbers for simplicity sake) under Dick’s leadership of Lehman Brothers leading up to the failure:

2004 Total Revenue: $21 Billion – Net Income: $2 Billion

2005 Total Revenue: $32 Billion – Net Income: $3 Billion

2006 Total Revenue: $46 Billion – Net Income: $4 Billion

2007 Total Revenue: $59 Billion – Net Income: $4 Billion

During the time frame noted above, Lehman showed steady growth in both revenue and profitability under Dick’s leadership. If you look at the most aggressive estimates of the amount of his total compensation during that time period it totals nearly $480 million dollars. This number is less than 1% of the $140 Billion of gross revenue and less than 4% of the $13 Billion of net income earned over the same period. I don’t believe this number is in and of itself a bad number, especially given the fact that most of Fuld’s compensation was incentive based. Fuld had no employment contract, received no golden parachute upon exit, and there were no last minute insider stock trades that he benefited from. Dick Fuld didn’t receive excessive compensation any more than his other executives and investment bankers did. They were highly compensated in an industry that offers lucrative pay. While not palatable to all, it is certainly not a crime.

The real issue surrounding Fuld is not his compensation, but rather his poor decisioning in failing to manage the risk associated with the complex synthetic and derivative securities they were participating in. However he was not alone in this regard, as all other financial institutions were trading in these securities as well.

Let me shine the light squarely on those individuals whom I believe are the real culprits in this debacle. It was not the investment banking CEOs, but the corrupt CEOs of Fannie Mae, Freddie Mac, and the corrupt politicians who allowed them to function without oversight and accountability. I must also chasten the shameless politicians who use national tragedy and congressional testimony as a publicity platform to air venomous soundbites in order to transfer blame and cater to their constituencies leading up to an election. Oversight is a good thing, but where were these concerned politicians leading up to this mess. Arm chair quarterbacking and shameless self-promotion at the expense of others is not why we elect our public servants, but I digress…

Bottom line…it is not wrong to assign some blame to the rogue CEOs who deserve it, but it is terribly wrong to assign blame to those good chief executives just because CEO is printed on their business card.